The Mongolian economy is entering into a phase of adjustment following expansionary monetary and fiscal policies that have created fiscal stress largely from off-budget expenditures, says a new Asian Development Bank (ADB) study.
According to the update of its flagship economic flagship economic publication, Asain Development Outlook (ADO) 2016, economic growth slowed to 1.4% in the first half of 2016, but is likely to be slightly more resilient for the whole of 2016 (0.3%) and 2017 (1.4%) than earlier forecast. The main drivers of growth over the forecast period are the underground development of Phase 2 of the Oyu Tolgoi copper and gold mine, and an agricultural rebound following the harsh winter of 2015-2016. Stable food and fuel prices offset the inflationary impact of currency depreciation and expansionary fiscal and monetary expansion. Inflation is expected to be held at 3.2% for the year before rising in 2017 to 5.4%. .
"Mongolia`s long term prospects are promising," said Yolanda Fernandez Lommen, ADB`s Country Director in Mongolia. "Large ongoing mining projects are expected to turn the balance of the fiscal budget and the balance of payments into surpluses in the years ahead. While successfully managing this mineral wealth is a key for Mongolia`s future, more is needed. Ensuring macroeconomic stability and making mining-led growth sustainable and inclusive are among the greatest development challenges, in addition to economic diversification and higher productivity growth."
Merchandise exports fell by 9.6% year on year from Jan to Jul 2016, while imports declined by 17.0%, yielding a higher trade surplus and a narrower current account deficit, the report says. This helped trim the overall balance of payments deficit to $46 million. But negative net foreign exchange reserves and large external debt repayments due in 2017-2018 are exerting pressure on the balance of payments. These pressures are likely to continue over the forecast period as the current account deficit widens and external debt is repaid.
Supported by external public debt, gross foreign exchange reserves stood at the end of Jun at $1.3 billion, or above 3 months of import cover. Currency depreciation prompted the central bank to raise its policy rate in Aug by 4.5 percentage points to 15.0%.
Volatility in global commodity prices, tightening external finance, and sizeable external debt repayments are the main risks to the forecast, she added.
ADB approvals for Mongolia amounted to $297.5 million in 2015, including 4 sovereign loans for $275 million, 2 project grants for $6 million, and 17 technical assistance grants for $16.5 million.
The Mongolian economy is entering into a phase of adjustment following expansionary monetary and fiscal policies that have created fiscal stress largely from off-budget expenditures, says a new Asian Development Bank (ADB) study.
According to the update of its flagship economic flagship economic publication, Asain Development Outlook (ADO) 2016, economic growth slowed to 1.4% in the first half of 2016, but is likely to be slightly more resilient for the whole of 2016 (0.3%) and 2017 (1.4%) than earlier forecast. The main drivers of growth over the forecast period are the underground development of Phase 2 of the Oyu Tolgoi copper and gold mine, and an agricultural rebound following the harsh winter of 2015-2016. Stable food and fuel prices offset the inflationary impact of currency depreciation and expansionary fiscal and monetary expansion. Inflation is expected to be held at 3.2% for the year before rising in 2017 to 5.4%. .
"Mongolia`s long term prospects are promising," said Yolanda Fernandez Lommen, ADB`s Country Director in Mongolia. "Large ongoing mining projects are expected to turn the balance of the fiscal budget and the balance of payments into surpluses in the years ahead. While successfully managing this mineral wealth is a key for Mongolia`s future, more is needed. Ensuring macroeconomic stability and making mining-led growth sustainable and inclusive are among the greatest development challenges, in addition to economic diversification and higher productivity growth."
Merchandise exports fell by 9.6% year on year from Jan to Jul 2016, while imports declined by 17.0%, yielding a higher trade surplus and a narrower current account deficit, the report says. This helped trim the overall balance of payments deficit to $46 million. But negative net foreign exchange reserves and large external debt repayments due in 2017-2018 are exerting pressure on the balance of payments. These pressures are likely to continue over the forecast period as the current account deficit widens and external debt is repaid.
Supported by external public debt, gross foreign exchange reserves stood at the end of Jun at $1.3 billion, or above 3 months of import cover. Currency depreciation prompted the central bank to raise its policy rate in Aug by 4.5 percentage points to 15.0%.
Volatility in global commodity prices, tightening external finance, and sizeable external debt repayments are the main risks to the forecast, she added.
ADB approvals for Mongolia amounted to $297.5 million in 2015, including 4 sovereign loans for $275 million, 2 project grants for $6 million, and 17 technical assistance grants for $16.5 million.